TELUS reports strong results for fourth quarter 2016 Announces 2017 financial targets

Transcription

1 News Release February 9, 2017 TELUS reports strong results for fourth quarter 2016 Announces 2017 financial targets Strong customer loading across key growth segments with 127,000 net new postpaid wireless, Internet and TELUS TV customer additions, up 17 per cent from last year Industry-leading wireless monthly postpaid churn of 0.98 per cent, third consecutive year with churn below 1.00 per cent Strong ARPU growth of 3.9 per cent and best-in-class lifetime revenue per client of $5,300 $1.2 billion returned to shareholders in 2016; 7 to 10 per cent annual dividend increase targeted in 2017 Targeting 2017 revenue growth of up to 3.5 per cent and EBITDA growth of up to 6.0 per cent on a consolidated basis Vancouver, B.C. TELUS Corporation s consolidated operating revenue increased 2.7 per cent to $3.3 billion in the fourth quarter of 2016, over the same period a year ago, reflecting higher data revenue and subscriber growth in both wireless and wireline operations. Earnings before interest, income taxes, depreciation and amortization (EBITDA) 1 decreased by 21 per cent to $769 million due to significantly higher restructuring and other costs which included the immediately vesting transformative compensation expense (transformative compensation) of $305 million. When excluding restructuring and other costs as well as net gains and equity income related to real estate joint venture developments in the fourth quarter of 2016, adjusted EBITDA was up 3.1 per cent to $1.1 billion, and up 5.1 per cent when excluding a non-recurring gain on certain real estate assets in the fourth quarter of This growth reflects higher wireless and wireline revenue, as well as ongoing execution of operational efficiency and effectiveness initiatives. TELUS delivered robust fourth quarter results reflecting strong revenue, EBITDA and subscriber growth across both of our wireless and wireline businesses, said Darren Entwistle, President and CEO. Our exceptional team continued to demonstrate their ability to navigate successfully the competitive environment, delivering the best customer experience and shareholder value in the industry. Mr. Entwistle added TELUS built upon our track record of delivering industry-leading shareholder-friendly initiatives in Notably, we returned over $1.2 billion to shareholders in both dividends and share purchases and we are targeting another 7 to 10 per cent increase in dividends in TELUS has now returned approximately $14 billion to shareholders, including $8.7 billion in dividends and $5.2 billion in share purchases, representing $24 per share since Mr. Entwistle further commented As we look to 2017, TELUS is once again providing industry-leading revenue, EBITDA and dividend growth targets, highlighting the confidence we have in the entire global TELUS organization. These targets are representative of the ongoing excellence of our long-term strategy, reflecting the consistency, diversity and combined strength of both our wireless and wireline operating segments that underpin our shareholder-friendly initiatives. Doug French, TELUS Executive Vice-President and CFO said, TELUS fourth quarter results demonstrated a strong finish to 2016, reflecting our team s consistent execution against our long-standing strategy along with maintaining an organization-wide focus on operational efficiency and effectiveness. Looking forward into 2017, we remain focused on delivering strong financial and operating performance, leading customer experience and maintaining our strong balance sheet position while we continue to make the generational investments in broadband and wireless networks. Through these investments, TELUS will continue to 1 of 42

2 enhance its network leadership driving profitable growth and free cash flow to support ongoing investor returns well into the future. In wireless, network revenue growth was driven by an 11 per cent increase in data revenue, reflecting a larger proportion of higher-rate two-year plans in the revenue mix, increased adoption of larger data buckets or topping up of data buckets, continued subscriber growth, a more favourable postpaid subscriber mix, and increased data usage from data-intensive devices. In wireline, data revenue growth of 6.1 per cent was generated by increased Internet and enhanced data service revenues from continued high-speed Internet subscriber growth and higher revenue per customer, growth in business process outsourcing revenues, and an increase in TELUS TV revenues from subscriber growth and higher revenue per customer. In the quarter, TELUS attracted 127,000 new wireless postpaid, high-speed Internet and TV customers, up 18,000 over the same quarter a year ago and up 12,000 sequentially over the prior quarter. Net additions in the quarter included 87,000 wireless postpaid customers, 24,000 high-speed Internet subscribers, and 16,000 TELUS TV customers. These gains were partially offset by the ongoing loss of traditional telephone network access lines and a moderating decline in wireless prepaid customers. TELUS total wireless subscriber base of 8.6 million is up 1.5 per cent from a year ago, reflecting a 2.7 per cent increase in the postpaid subscriber base to more than 7.5 million. TELUS high-speed Internet connections have increased 5.7 per cent to 1.7 million, while TELUS TV subscribers are higher by 5.4 per cent to more than 1 million. TELUS delivered an industry-leading wireless monthly postpaid churn rate of 0.98 per cent. TELUS postpaid churn rate has now been below the 1 per cent level for 13 of the past 14 quarters. For the year, postpaid monthly churn was 0.95 per cent. CONSOLIDATED FINANCIAL HIGHLIGHTS C$ and in millions, except per share amounts Three months ended December 31 Per cent (unaudited) change Operating revenues 3,305 3, Operating expenses before depreciation and amortization 2,536 2, EBITDA (1) (21.3) EBITDA excluding restructuring and other costs (1)(2) 1,117 1, Adjusted EBITDA (1)(2)(3) 1,110 1, Net income (66.7) Net income attributable to common shares (69.0) Adjusted net income (4) (2.5) Basic earnings per share (EPS) (68.2) Adjusted basic EPS (4) (1.9) Capital expenditures Free cash flow (5) (191) 197 n/m Total subscriber connections (6) (1) (2) (3) (4) EBITDA is a non-gaap measure and does not have any standardized meaning prescribed by IFRS-IASB. TELUS issues guidance on and reports EBITDA because it is a key measure used to evaluate performance at a consolidated and segmented level. For further definition and explanation of this measure, see Section 4.1 in the accompanying 2016 fourth quarter Management s review of operations. For the fourth quarter of 2016 and 2015, restructuring and other costs were $348 million and $99 million respectively. In the fourth quarter of 2016, TELUS recorded a transformative compensation expense of $305 million as part of other costs. Adjusted EBITDA for the fourth quarter of 2016 excludes: 1) restructuring and other costs of $348 million; and 2) net gains and equity income of $7 million related to real estate joint venture developments. Adjusted net income and adjusted basic EPS are non-gaap measures and do not have any standardized meaning prescribed by IFRS-IASB. These terms are defined in this news release as excluding from net income attributable to common shares and basic EPS (after income taxes), 1) restructuring and other costs in the fourth quarters of 2016 and 2015; 2) favourable income tax-related adjustments in the fourth quarters of 2016 and 2015; and 3) net gains and equity income from real estate joint venture developments in the fourth quarter of 2016, For further analysis of adjusted net income and Adjusted basic EPS see Section 1.2 in the accompanying 2016 fourth quarter Management s review of operations. 2 of 42

3 (5) (6) Free cash flow is a non-gaap measure and does not have any standardized meaning prescribed by IFRS-IASB. For definition and explanation of this measure, see Section 4.1 in the accompanying 2016 fourth quarter Management s review of operations. The sum of active wireless subscribers, residential network access lines (NALs), high-speed Internet access subscribers and TELUS TV subscribers (Optik TV and TELUS Satellite TV subscribers) measured at the end of the respective periods based on information in billing and other systems. Subsequent to a review of our subscriber base, TELUS Q beginning of period postpaid wireless subscriber base was reduced by 45,000 and the Q beginning of period high-speed Internet subscriber base was increased by 21,000. For the quarter, net income of $87 million and basic earnings per share (EPS) of $0.14 were impacted by significantly higher restructuring and others costs, primarily reflecting the transformative compensation expense. When excluding restructuring and other costs, net gains and equity income from real estate joint venture developments, and favourable income tax-related adjustments, adjusted net income declined by 2.5 per cent, while adjusted basic EPS of $0.53 decreased slightly from the same period a year ago. Free cash flow 5 of $(191) million in the fourth quarter declined from $197 million a year ago, primarily due to payments in respect of transformative compensation and higher capital expenditures. In the fourth quarter of 2016, TELUS returned $311 million to shareholders including $272 million in dividends paid and $39 million in share purchases under its 2017 normal course issuer bid (NCIB) program. In 2016, TELUS returned more than $1.2 billion to shareholders, including $1.07 billion in dividends paid and the purchase of approximately 4.3 million shares for $169 million. This news release contains statements about financial and operating performance of TELUS (the Company) and future events that are forward looking, including with respect to the Company s 2017 annual targets and guidance and future dividend increases. By their nature, forward-looking statements require the Company to make assumptions and predictions and are subject to inherent risks and uncertainties. There is significant risk that the forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future performance and events to differ materially from those expressed in the forward-looking statements. Accordingly, the forward-looking statements in this news release should be read together with the cautionary note in the accompanying fourth quarter Management s review of operations. Forward-looking statements in this news release are made based on the assumptions (including assumptions regarding the 2017 annual targets and guidance, semi-annual dividend increases through 2019, and our ability to sustain and complete our multi-year share purchase program through 2019), and subject to the qualifications and risk factors referred to in the Management s review of operations, in the 2016 annual Management s discussion and analysis, and in other TELUS public disclosure documents and filings with securities commissions in Canada (on SEDAR at sedar.com) and in the United States (on EDGAR at sec.gov). The forward-looking statements contained in this news release describe our expectations at the date of this news release and, accordingly, are subject to change after such date. Except as required by law, TELUS disclaims any intention or obligation to update or revise forward-looking statements, and reserves the right to change, at any time at its sole discretion, its current practice of updating annual targets and guidance. 3 of 42

4 Fourth Quarter 2016 Operating Highlights TELUS wireless Wireless network revenues increased by $86 million or 5.4 per cent year-over-year to $1.7 billion. This growth was driven by a larger proportion of higher-rate two-year plans in the revenue mix, increased adoption of larger data buckets or topping up of data buckets, continued subscriber growth, a more favourable postpaid subscriber mix, and increased data usage from data-intensive devices. This growth was partially offset by the ongoing decline in voice revenue from increased adoption of unlimited nationwide voice plans and continued but moderating substitution to data services. Blended ARPU was higher by 3.9 per cent to $ This represents TELUS twenty-fifth consecutive quarter of year-over-year growth. The growth was driven by data network revenue growth as described above. Monthly postpaid subscriber churn of 0.98 per cent improved by three basis points year-over-year. The decline reflects our focus on executing on customers first initiatives and retention programs, partly offset by competitive intensity and the effects of the economic slowdown, particularly in Alberta. Blended monthly churn improved by 7 basis points to 1.25 per cent reflecting improvements in both postpaid and prepaid churn rates, as well as an increase in the mix of postpaid subscribers. Postpaid net additions of 87,000 were higher year-over-year by 25,000 due to higher gross additions, reflecting the success of targeted promotions and marketing efforts, and lower churn. Total wireless net additions of 78,000 were higher by 42,000 over a year ago due to higher postpaid net additions and improved prepaid losses of 9,000. Adjusted wireless EBITDA (EBITDA excluding the net gains and equity income from real estate joint venture developments, as well as restructuring and other costs) increased by $26 million or 4.0 per cent over last year to $679 million. When excluding a non-recurring gain on certain real estate assets in the fourth quarter of 2015, adjusted wireless EBITDA would have increased by 5.1 per cent in the fourth quarter The growth reflects higher network revenue as well as ongoing operational efficiency and effectiveness initiatives, partly offset by higher acquisition and retention spending reflecting higher per-unit subsidies due to customer preference for higher-value smartphones and competitive intensity. Wireless capital expenditures increased by 19 per cent over the same period a year ago due to ongoing investments in TELUS fibre-optic network to support its small-cell technology strategy to improve coverage and prepare for a more efficient and timely evolution to 5G, as well as investments in systems and cost efficiency initiatives. TELUS wireline External wireline revenues increased by $19 million or 1.3 per cent to $1.5 billion. This growth was generated primarily by higher data service and equipment revenue. Data service and equipment revenues increased by $60 million or 6.1 per cent, due to increased Internet and enhanced data revenues from continued high-speed Internet subscriber growth and higher revenue per customer, growth in business process outsourcing services, and increased TELUS TV revenues from continued subscriber growth and higher revenue per customer. High-speed Internet net additions of 24,000 were up 2,000 from the same quarter a year ago, reflecting the ongoing expansion of TELUS high-speed broadband footprint, including fibre-to-the-premises and the pullthrough effect of bundling with Optik TV. Total TV net additions of 16,000 were lower by 9,000 over the same quarter a year ago, as a result of lower gross additions, a higher customer churn rate and a decline in satellite subscribers due to the effects of heightened competitive intensity including OTT services, slower subscriber growth for paid TV services, the economic slowdown, and a high rate of market penetration for TV services. These factors were partly offset by the ongoing expansion of our addressable high-speed Internet and Optik TV footprint, connecting more homes and businesses directly to fibre and bundling of these services together. Residential network access lines (NALs) declined by 22,000 in the quarter, an improvement of 2,000 over the same quarter a year ago. Residential NAL losses continue to reflect the economic slowdown, the ongoing trend towards wireless and Internet substitution, partly mitigated by the success of TELUS bundled service offerings. Adjusted wireline EBITDA (EBITDA excluding the net gains and equity income from real estate joint venture developments as well as restructuring and other costs) increased by $7 million or 1.7 per cent over last year to $431 million. When excluding a non-recurring gain on certain real estate assets in the fourth quarter of 2015, adjusted wireline EBITDA would have increased by 5.0 per cent in the fourth quarter The improvement reflects execution on operating efficiency and effectiveness initiatives, as well as improving 4 of 42

5 margins in data services, including Internet, business process outsourcing services, TELUS TV, and TELUS Health services. Capital expenditures increased 22 per cent over the same period a year ago due primarily to continued strategic investments in broadband network infrastructure, including connecting more homes and businesses directly to TELUS fibre-optic network. This investment supports high-speed Internet and Optik TV subscriber growth, as well as TELUS growing customer demand for faster Internet speeds, and extends the reach and functionality of TELUS business and healthcare solutions. TELUS sets 2017 consolidated financial targets TELUS consolidated financial targets for 2017 are reflective of the company s strategic investments in advanced broadband technology and wireless infrastructure, a commitment by the TELUS team to deliver client service excellence and continued focus on cost efficiency and effectiveness. TELUS 2017 financial targets are supportive of the Company s multi-year dividend growth program first announced in May 2011, under which TELUS has since delivered 12 dividend increases. TELUS plans to continue delivering on its dividend growth program in 2017 through 2019, targeting annual dividend growth between 7 and 10 per cent. In 2017, TELUS plans to continue generating positive subscriber growth in its key growth segments, including wireless, high-speed Internet and TELUS TV. Increasing customer demand for reliable access and fast data services are expected to support wireless and Internet growth. TELUS International and TELUS Health are also expected to contribute to TELUS diversified growth profile Targets 2016 Results Growth Consolidated Revenues $ to $ billion $ billion 2.5 to 3.5% EBITDA excluding restructuring $4.850 to $4.995 billion $4.708 billion 3.0 to 6.0% and other costs (1) Basic earnings per share (2) $2.49 to $2.64 $ to 8.0% Capital expenditures (3) Approximately $2.9 billion $2.968 billion - 1) In 2017, total restructuring and others costs are expected to be approximately $125 million, as compared to $479 million in ) Basic EPS for 2016 adjusted to exclude the lump-sum transformative compensation expense of 38 cents. 3) Capital expenditure targets and results exclude expenditures for spectrum licences. For 2017, TELUS is targeting consolidated annual revenue growth of between 2.5 and 3.5 per cent, driven by higher contribution from wireless network revenue reflecting continued subscriber and ARPU growth as well as ongoing wireline revenue growth from higher data services revenue. Consolidated EBITDA excluding restructuring and other costs is targeted to be higher by 3.0 to 6.0 per cent driven by higher wireless network revenue growth, margin improvements from wireless and wireline data services and savings from ongoing cost efficiency and effectiveness initiatives. Higher subsidies for smartphones are expected to continue pressuring cost of acquisition and retention expense. Basic earnings per share (EPS) is targeted to increase by 2.0 to 8.0 per cent driven primarily by EBITDA growth. Consolidated capital expenditures for 2017, excluding the purchase of spectrum licences, are targeted to be approximately $2.9 billion. TELUS plans to continue connecting more homes and businesses directly to its fibre-optic network, to support ongoing high-speed Internet and Optik TV subscriber growth and faster Internet broadband speeds. The investments in fibre will also support our small-cell technology strategy to improve coverage and prepare for a more efficient and timely evolution to 5G. We also intend to continue investing in our wireless network for 4G LTE expansion and upgrades, including the ongoing deployment of 700 MHz and 2500 MHz spectrum, as well as invest in network and system resiliency and reliability to support our ongoing customers first initiatives and ready the network and systems for future retirement of legacy assets. 5 of 42

6 TELUS cash income tax payments for the full year are estimated to decline over 2016 levels to between $300 million and $360 million (2016 $600 million). The decline in cash tax payments reflects both lower instalment payments for 2017 based on 2016 income and a lower final instalment payment for 2016 to be made in early 2017, partly offset by a decrease in income tax recoveries. The preceding disclosure respecting TELUS 2017 financial targets contains forward-looking information and is fully qualified by the Caution regarding forward-looking statements at the beginning of the accompanying Management s review of operations for the fourth quarter of 2016 and in the full year 2016 Management s discussion and analysis filed on the date hereof on SEDAR, especially Section 10 entitled Risks and Risk Management thereof which is hereby incorporated by reference, and is based on management s expectations and assumptions as set out in Section 1.7 entitled Financial and operating targets for 2017 in the accompanying Management s review of operations for the fourth quarter of Corporate Highlights TELUS makes significant contributions and investments in the communities where team members live, work and serve and to the Canadian economy on behalf of customers, shareholders and team members by: Paying, collecting and remitting a total of approximately $2.2 billion in taxes in 2016 to federal, provincial and municipal governments in Canada consisting of corporate income taxes, sales taxes, property taxes, employer portion of payroll taxes and various regulatory fees. Since 2000, the Company has remitted approximately $21 billion in these taxes. Disbursing spectrum renewal fees of $53 million to Innovation, Science and Economic Development Canada in Since 2002, TELUS total tax and spectrum remittances to federal, provincial and municipal governments in Canada have totaled approximately $26 billion. Investing $3.0 billion in capital expenditures primarily in communities across Canada in 2016 and more than $32 billion since Spending $8.0 billion in total operating expenses in 2016, including goods and service purchased of $5.7 billion. Since 2000, TELUS has spent $99 billion and $65 billion respectively in these areas. Generating a total team member payroll of $2.8 billion in 2016, including payroll taxes of $137 million. Since 2000, total team member payroll totals $39 billion. Paying $1.07 billion in dividends in 2016 to individual shareholders, mutual fund owners, pensioners and institutional investors, and purchasing approximately 4.3 million shares for $169 million on behalf of shareholders under TELUS share purchase program. Returning approximately $14 billion to shareholders through TELUS dividend and share purchase programs from 2004 to the end of 2016, including $8.7 billion in dividends and $5.2 billion in share purchases, representing nearly $24 per share. Dividend Declaration The TELUS Board of Directors has declared a quarterly dividend of 48 cents ($0.48) Canadian per share on the issued and outstanding Common Shares of the Company payable on April 3, 2017 to holders of record at the close of business on March 10, This first quarter dividend represents a four cent increase from the $0.44 quarterly dividend paid on April 1, About TELUS TELUS (TSX: T, NYSE: TU) is Canada s fastest-growing national telecommunications company, with $12.8 billion of annual revenue and 12.7 million subscriber connections, including 8.6 million wireless subscribers, 1.7 million high-speed Internet subscribers, 1.4 million residential network access lines and more than 1.0 million TELUS TV customers. TELUS provides a wide range of communications products and services, including wireless, data, Internet protocol (IP), voice, television, entertainment and video, and is Canada's largest healthcare IT provider. In support of our philosophy to give where we live, TELUS, our team members and retirees have contributed over $482 million to charitable and not-for-profit organizations and volunteered more than 7.7 million hours of service to local communities since Created in 2005 by President and CEO Darren Entwistle, TELUS 12 Canadian community boards and 5 International boards have led the Company s support of grassroots charities and have contributed more than $60 million in support of 5,595 local charitable projects, enriching 6 of 42

7 the lives of more than 2 million children and youth, annually. TELUS was honoured to be named the most outstanding philanthropic corporation globally for 2010 by the Association of Fundraising Professionals, becoming the first Canadian company to receive this prestigious international recognition. For more information about TELUS, please visit telus.com. Media relations: Shawn Hall (604) shawn.hall@telus.com Investor relations: Paul Carpino (647) ir@telus.com Access to Quarterly results information Interested investors, the media and others may review this quarterly earnings news release, management s discussion and analysis, quarterly results slides, audio and transcript of the investor webcast call, supplementary financial information, the 2016 annual Management s discussion and analysis and financial statements, and our full 2016 annual report at telus.com/investors. TELUS fourth quarter 2016 and 2017 targets conference call is scheduled for Thursday, February 9, 2017 at 11:00am ET (8:00am PT) and will feature a presentation followed by a question and answer period with investment analysts. Interested parties can access the webcast at telus.com/investors. A telephone playback will be available on February 9 until March 15, 2017 at Please use reference number # and access code 77377#. An archive of the webcast will also be available at telus.com/investors and a transcript will be posted on the website within a few business days. 7 of 42

8 TELUS CORPORATION Management s review of operations 2016 Q4 8 of 42

9 Caution regarding forward-looking statements This document contains forward-looking statements about expected events and the financial and operating performance of TELUS Corporation. The terms TELUS, the Company, we, us and our refer to TELUS Corporation and, where the context of the narrative permits or requires, its subsidiaries. Forward-looking statements include any statements that do not refer to historical facts. They include, but are not limited to, statements relating to our objectives and our strategies to achieve those objectives, our targets (including our annual targets for 2017 described in Section 1.7 of this document), outlook, updates, our multi-year dividend growth program, our multi-year share purchase program, and statements about anticipated trends regarding our business and the environment in which we operate (in particular: Section 1 Discussion of operations). Forward-looking statements are typically identified by the words assumption, goal, guidance, objective, outlook, strategy, target and other similar expressions, or future or conditional verbs such as aim, anticipate, believe, could, expect, intend, may, plan, predict, seek, should, strive and will. By their nature, forward-looking statements are subject to inherent risks and uncertainties and are based on assumptions, including assumptions about future economic conditions and courses of action. The assumptions on which our annual targets for 2017 are based are discussed in Section 1.7 of this document. These assumptions may ultimately prove to have been inaccurate and, as a result, our actual results or events may differ materially from our expectations expressed in or implied by the forward-looking statements. Risks and uncertainties that could cause actual performance or events to differ materially from the forward-looking statements made herein and in other TELUS filings include, but are not limited to, the following: Competition including: our ability to continue to retain customers through an enhanced customer service experience, including through the deployment and operation of new wireless networks and the success of new products, new services and supporting systems, such as Internet of Things (IoT) services for Internet-connected devices; continued intense rivalry across all services among wireless and wireline telecommunications companies, cable-tv providers, other communications companies and over-thetop (OTT) services, which, among other things, places pressures on average revenue per subscriber unit per month (ARPU) and churn for all services (wireless and wireline), as do customer usage patterns, flat-rate pricing trends for voice and data, inclusive rate plans for voice and data and increasing availability of Wi-Fi networks for data; mergers and acquisitions of industry competitors; pressures on high-speed Internet and TV ARPU and churn resulting from market conditions, government actions and customer usage patterns; residential and business network access line (NAL) losses; subscriber additions and retention volumes, and associated costs for wireless, TV and high-speed Internet services; and our ability to obtain and offer content on a timely basis across multiple devices on wireless and TV platforms at a reasonable cost. Technological substitution including: reduced utilization and increased commoditization of traditional wireline voice local and long distance services from impacts of OTT applications and wireless substitution, a declining overall market for paid TV services; the increasing number of households that have only wireless and/or Internet-based telephone services; continuation of wireless voice ARPU declines as a result of, among other factors, substitution to messaging and OTT applications; substitution to increasingly available Wi-Fi services from wireless services; and disruptive technologies such as OTT Internet protocol (IP) services that may displace our services including TV and entertainment services, and impact revenue. Technology including: subscriber demand for data that may challenge wireless networks and spectrum capacity levels in the future; our reliance on information technology and our need to understand and streamline our legacy systems; technology options, evolution paths and roll-out plans for wireless and wireline networks (including broadband initiatives, such as fibre to the premises (FTTP), wireless small-cell deployment, 5G wireless and availability of resources and ability to build out adequate broadband capacity); our reliance on wireless network access agreements, which have facilitated our deployment of wireless technologies; choice of suppliers and those suppliers ability to maintain and service their product lines, which could affect the success of upgrades to and evolution of technology that we offer (such as TELUS TV); supplier concentration and market power for network equipment, TELUS TV and wireless handsets; the performance of wireless technology; our expected long-term need to acquire additional spectrum capacity through future spectrum auctions and from third parties to address increasing demand for data; deployment and operation of new wireline broadband networks at a reasonable cost and availability, and success of new products and services to be rolled out on such networks; network reliability and change management; and uncertainties around our strategy to replace certain legacy wireline networks, systems and services to reduce operating costs. Capital expenditure levels and potential outlays for spectrum licences in spectrum auctions or from third parties, due to: our broadband initiatives, including connecting more homes and businesses directly to fibre; our ongoing deployment of newer wireless technologies such as 5G; utilizing newly acquired spectrum; investments in network resiliency and reliability; subscriber demand for data; evolving systems and business processes; implementing efficiency initiatives; supporting large complex deals; and future wireless spectrum auctions held by Innovation, Science and Economic Development Canada (ISED). Our capital expenditure levels could be impacted if we do not achieve our targeted operational and financial results. 9 of 42

10 Regulatory decisions and developments including: the potential of government intervention to further increase wireless competition; the Canadian Radio-television and Telecommunications Commission (CRTC) review of the Wireless Code; the CRTC wireless wholesale services review, in which it was determined that the CRTC will regulate wholesale GSM-based domestic roaming rates and the setting of such rates; future spectrum auctions (including limitations on established wireless providers, spectrum set-aside that favours certain carriers and other advantages provided to new and foreign participants, and the amount and cost of spectrum acquired); restrictions on the purchase, sale and transfer of spectrum licences; the undetermined long-term impact of the CRTC s wireline wholesale services review; the potential impacts from the CRTC s decision to require prorated refunds when customers terminate their services; the CRTC s examination of differential pricing practices related to Internet data plans; the impact from the review of Canada s cultural policies by the Minister of Canadian Heritage; vertical integration in the broadcasting industry resulting in competitors owning broadcast content services and timely and effective enforcement of related regulatory safeguards; and restrictions on non-canadian ownership of TELUS Common Shares and the ongoing monitoring and compliance with such restrictions. Human resource matters including: recruitment, retention and appropriate training in a highly competitive industry, and the level of employee engagement. Process risks including: our reliance on legacy systems and ability to implement and support new products and services and business operations; our ability to implement effective change management for system replacements and upgrades, process redesigns and business integrations (including our ability to successfully integrate acquisitions, complete divestitures or establish partnerships in a timely manner, and realize expected strategic benefits), the risk that transaction with BCE to acquire a portion of MTS wireless customers and dealers, including obtaining the necessary regulatory approvals, may not be completed and there being no assurance regarding the successful migration of such customers and dealers; the implementation of complex large enterprise deals that may be adversely impacted by available resources, system limitations and degree of co-operation from other service providers; our ability to successfully manage operations in foreign jurisdictions; information security and privacy breaches, including data loss or theft of data; intentional threats to our infrastructure and business operations; and real estate joint venture re-development risks. Ability to successfully implement cost reduction initiatives and realize planned savings, net of restructuring and other costs, without losing customer service focus or negatively affecting business operations. Examples of these initiatives are: our operating efficiency and effectiveness program to drive improvements in earnings before interest, income taxes, depreciation and amortization (EBITDA) including the expected benefits of the immediately vesting transformative compensation initiative; business integrations; business process outsourcing; offshoring and reorganizations, including any FTE employee reduction programs; procurement initiatives; and real estate rationalization. Additional revenue and cost efficiency and effectiveness initiatives will continue to be assessed and implemented, as required. Financing and debt requirements including our ability to carry out financing activities and our ability to maintain investment grade credit ratings in the range of BBB+ or the equivalent. Ability to sustain our dividend growth program through 2019 and ability to sustain and complete our multi-year share purchase program through These programs may be affected by factors such as the competitive environment, economic performance in Canada, our earnings and free cash flow, our levels of capital expenditures and spectrum licence purchases, and regulatory decisions and developments. Quarterly dividend decisions are subject to assessment and determination by our Board of Directors (Board) based on the Company s financial position and outlook. The share purchase program may be affected by a change in our intention to purchase shares, and the assessment and determination of our Board from time to time, based on the Company s financial position and outlook, and the market price of TELUS shares. Consequently, there can be no assurance that these programs will be maintained through Taxation matters including: interpretation of complex tax laws by the tax authorities that may differ from our interpretations; changes in tax laws, including tax rates; tax expenses being materially different than anticipated; elimination of income tax deferrals through the use of different tax year-ends for operating partnerships and corporate partners; and tax collection authorities adopting more aggressive auditing practices. Litigation and legal matters including: our ability to defend successfully against investigations, regulatory proceedings, claims and lawsuits, including intellectual property infringement claims and class actions pending against us, as well as possible proceedings, intellectual property infringement claims and class actions based on consumer claims, data, privacy or security breaches and secondary market liability; and the complexity of legal compliance in domestic and foreign jurisdictions. Health, safety and the environment, including lost employee work time resulting from illness or injury, public concerns related to radio frequency emissions, environmental issues affecting our business including climate change, waste and waste recycling, risks relating to fuels systems on our properties, and changing government and public expectations regarding environmental matters and our responses. Business continuity events including: our ability to maintain customer service and operate our networks in the event of human error or human-caused threats, such as cyber attacks and equipment failures that could cause various degrees of network outages; supply chain disruptions; natural disaster threats; epidemics; pandemics; and the completeness and effectiveness of business continuity and disaster recovery plans and responses. Economic growth and fluctuations including: the state of the economy in Canada, which may be influenced by economic and other developments outside of Canada; future interest rates; inflation; unemployment levels; effects of low oil prices; effects of low business spending (such as reducing investments and cost structure); pension investment returns, funding and discount rates; and Canadian/U.S. dollar exchange rates. 10 of 42

11 These risks are described in additional detail in Section 10 Risks and risk management in our 2016 Management s discussion and analysis (MD&A), which will be filed concurrently with this document. That description is incorporated by reference in this cautionary statement but is not intended to be a complete list of the risks that could affect the Company. Many of these factors are beyond our control or our current expectations or knowledge. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a material adverse effect on our financial position, financial performance, cash flows, business or reputation. Except as otherwise indicated in this document, the forward-looking statements made herein do not reflect the potential impact of any non-recurring or special items or any mergers, acquisitions, dispositions or other business combinations or transactions that may be announced or that may occur after the date of this document. Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements in this document describe our expectations and are based on our assumptions as at the date of this document and are subject to change after this date. Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements. This cautionary statement qualifies all of the forward-looking statements in this document. 11 of 42

12 Management s review of operations (MRO) February 9, 2017 Contents Section Description 1. Discussion of operations 1.1 Preparation of Management s review of operations 1.2 Consolidated operations 1.3 Wireless segment 1.4 Wireline segment 1.5 Summary of consolidated quarterly results and trends 1.6 Performance scorecard (key performance measures) 1.7 Financial and operating targets for Changes in financial position 3. Discussion of cash flow results 3.1 Overview of cash flow results 3.2 Cash provided by operating activities 3.3 Cash used by investing activities 3.4 Cash provided (used) by financing activities 4. Definitions and reconciliations 4.1 Non-GAAP and other financial measures 4.2 Operating indicators 1. Discussion of operations This section contains forward-looking statements, including those with respect to our expectations for capitalization of long-term debt interest, deployment of wireless spectrum licences, ARPU growth, wireless retention spending and highspeed Internet subscriber growth trends as they relate to the future. There can be no assurance that we have accurately identified the trends based on past results, or that these trends will continue. See Caution regarding forward-looking statements at the beginning of this MRO. 1.1 Preparation of Management s review of operations (MRO) The following sections discuss the consolidated financial position and financial performance of TELUS for the threemonth period and year ended December 31, The discussion should be read together with the accompanying summary financial information. Our operating and reportable segments are wireless and wireline. Segmented information is regularly reported to our Chief Executive Officer (the chief operating decision-maker). The generally accepted accounting principles (GAAP) we use are the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Our use of the term IFRS in this MRO is a reference to these standards. In our discussion, we also use certain non-gaap financial measures to evaluate our performance, monitor compliance with debt covenants and manage our capital structure. These measures are defined, qualified and reconciled with their nearest GAAP measures in Section 4.1. All currency amounts are in Canadian dollars, unless otherwise specified. Additional information relating to the Company, including our annual information form and other filings with securities commissions or similar regulatory authorities in Canada, is available on SEDAR ( Our filings with the Securities and Exchange Commission in the United States, including Form 40-F, are available on EDGAR ( Our disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management on a timely basis, so that appropriate decisions can be made regarding public disclosure. This document was reviewed by TELUS Audit Committee and approved by our Board of Directors for issuance on February 9, In this MRO, unless otherwise indicated, results for the fourth quarter and full year of 2016 are compared with corresponding results from the fourth quarter and full year of of 42

13 1.2 Consolidated operations The following is a discussion of our consolidated financial performance. Segmented discussion is provided in Section 1.3 Wireless segment, Section 1.4 Wireline segment and in Section 3.3 Cash used by investing activities capital expenditures. Consolidated highlights ($ millions, unless noted otherwise) Change Change Consolidated statements of income Operating revenues 3,305 3, % 12,799 12, % Operating expenses 3,069 2, % 10,617 10, % Operating income (48.7)% 2,182 2,353 (7.3)% Financing costs % % Income before income taxes (70.5)% 1,662 1,906 (12.8)% Income taxes (82.4)% (18.7)% Net income (66.7)% 1,236 1,382 (10.6)% Net income attributable to Common Shares (69.0)% 1,223 1,382 (11.5)% Earnings per share (EPS) ($) Basic EPS (68.2)% (10.0)% Adjusted basic EPS (1.9)% Diluted EPS (68.2)% (10.0)% Dividends declared per Common Share ($) % % Basic weighted-average Common Shares outstanding (millions) (1.2)% (1.8) % Other operating highlights ($ millions, unless noted otherwise) Change Change Subscriber connections 2 (thousands) 12,673 12, % EBITDA (earnings before interest, income taxes, depreciation and amortization) (21.3)% 4,229 4,262 (0.8)% Restructuring and other costs n/m % EBITDA excluding restructuring and other costs 1 1,117 1, % 4,708 4, % Adjusted EBITDA 4 1,110 1, % 4,667 4, % Adjusted EBITDA margin 5 (%) pts pts. Free cash flow 1 (191) 197 n/m 141 1,078 (86.9)% Notations used in MRO: n/m not meaningful; pts. percentage points. 1 Non-GAAP and other financial measures. See Section The sum of active wireless subscribers, residential network access lines (NALs), high-speed Internet access subscribers and TELUS TV subscribers (Optik TV and TELUS Satellite TV subscribers), measured at the end of the respective periods based on information in billing and other systems. Subsequent to a review of our subscriber base during the first quarter of 2016, our 2016 opening postpaid wireless subscriber base was reduced by 45,000 and our 2016 opening high-speed Internet subscriber base was increased by 21, In the fourth quarter of 2016, we recorded an immediately vesting transformative compensation expense of $305 million as part of other costs. 4 Adjusted EBITDA for all periods excludes restructuring and other costs. Adjusted EBITDA for the fourth quarter of 2016 excludes net gains and equity income of $7 million, related to real estate joint venture developments. Adjusted EBITDA for the full year of 2016 excludes: (i) a $15 million gain in the second quarter of 2016 from the exchange of wireless spectrum licences; and (ii) net gains and equity income of $26 million ($9 million in the second quarter, $10 million in the third quarter and $7 million in the fourth quarter) related to real estate joint venture developments. 5 Adjusted EBITDA margin is Adjusted EBITDA divided by Operating revenues, where the calculation of the Operating revenues excludes the net gains and equity income related to real estate joint venture developments, as well as the gain on exchanged wireless spectrum licences. 13 of 42

14 Operating revenues ($ millions) Change Change Service 3,079 2, % 12,000 11, % Equipment (14.0)% (13.7)% Revenues arising from contracts with customers 3,288 3, % 12,725 12, % Other operating income (45.2)% % 3,305 3, % 12,799 12, % Consolidated operating revenues increased by $88 million in the fourth quarter of 2016 and $297 million for the full year of Service revenue increased by $136 million in the fourth quarter of 2016 and $410 million for the full year of The increases primarily reflect growth in wireline data services and wireless network revenue, partly offset by continuing decline in wireline voice revenues. Wireline data service revenue reflects increased Internet and enhanced data revenue, increased business process outsourcing revenue and increased TELUS TV revenue. Internet, enhanced data and TV revenues reflect subscriber growth and higher revenue per customer. Wireless network revenue reflects growth in blended average revenue per subscriber unit per month (ARPU) and the wireless subscriber base. Equipment revenue decreased by $34 million in the fourth quarter of 2016 and $115 million for the full year of This reflects a decline in wireless equipment revenue of $17 million for the fourth quarter and $77 million for the full year from a combination of higher per-unit subsidies and lower retention volumes, partly offset by higher-value smartphones in the sales mix. For the full year, the decrease in wireless equipment revenue was also affected by discontinuance of Black s Photography revenue from the closure of stores in August In addition, wireline equipment revenue decreased by $17 million for the fourth quarter and $38 million for the full year, primarily from lower sales activity in the business market in part from the economic slowdown and a focus on providing managed services rather than equipment-only sales. Other operating income decreased by $14 million in the fourth quarter of 2016 and increased by $2 million for the full year of The decrease for the quarter was mainly due to non-recurrence of gains on the sale of certain real estate assets in the fourth quarter of 2015, partly offset by net gains and equity income on real estate joint venture developments in The increase for the full year was mainly due to net gains and equity income related to real estate joint venture developments, gains from the sale of property, plant and equipment in 2016, and the gain from the exchange of wireless spectrum licences in the second quarter of 2016, partly offset by non-recurrence of gains on the sale of certain real estate assets in the fourth quarter of 2015 and a decrease in amounts recognized from the regulatory price cap deferral account for provisioning broadband Internet services to eligible rural and remote communities. For additional discussion on wireless and wireline revenues, see Section 1.3 Wireless segment and Section 1.4 Wireline segment. Operating expenses ($ millions) Change Change Goods and services purchased 1,574 1, % 5,631 5, % Employee benefits expense % 2,939 2, % Depreciation ,564 1, % Amortization of intangible assets % % 3,069 2, % 10,617 10, % Operating expenses increased by $312 million in the fourth quarter of 2016 and $468 million for the full year of This increase included the immediately vesting transformative compensation expense (transformative compensation) of $305 million recorded in the fourth quarter of Goods and services purchased increased by $92 million in the fourth quarter of 2016 and $99 million for the full year of The increases were due to higher wireless acquisition and retention spending (including the effect of higher supplier cost of handsets partially due to the decline in the Canadian dollar exchange rate vs. the U.S. dollar over the last two years), as well as increased roaming costs. The increases were also due to higher wireline network operating and administrative costs to support our growing subscriber base, higher advertising and promotional expenses in support of bundled offerings and our response to heightened competitive intensity, as well as higher TV costs of sales due to a larger subscriber base, partly offset by lower transit and termination costs, ongoing 14 of 42